Whether a guarantee is still enforceable on the death of a guarantor is an interesting question that arises from time to time. The short answer to the question is, "Maybe."
So let's start at the beginning.
What is a guarantee?
A guarantee is essentially a binding promise by a party to make payment or meet the obligations owed by another. It will usually remain in place until that payment is made or obligation is met. We often find a guarantee in the context of a director providing surety in consideration of a creditor providing goods or services to that director's company from time to time.
The consideration for providing a guarantee can be either divisible or entire. An example of a guarantee that is divisible is the director's guarantee above. It usually has a provision for revoking the guarantee for any future transactions, which means that the guarantor remains liable for debts or obligations up to the date of cancellation but isn't liable for any occurring after that date. An example of an entire consideration is where a guarantee is given in consideration of a loan to a principal debtor. As the liability arises in one hit it would be unfair for the guarantor to revoke the guarantee after the loan has been advanced in reliance on the guarantee being given.
Can death revoke a guarantee?
Generally speaking, the answer is 'yes', where the consideration for the guarantee is divisible. Once notice of the death is received, the guarantee is revoked from the date of the notice in relation to future transactions. Notice doesn't need to be direct or formal.
Does the wording of the guarantee help it to survive death?
Death may not be the end of the matter. Your next task as a creditor seeking to rely on the guarantee is to look at the wording of the guarantee itself to see if there is anything that may negate this general position. If the wording specifically states that the guarantee is continuing and not revoked by death, or the guarantee extends to the guarantor's executors or personal representatives, there is a good chance that it will survive the death of the guarantor, allowing you to make a claim on their estate.
Where there's a will, there's a way
A provision in the guarantor's will that allows for continuing liability under a guarantee, may also assist survival of a guarantee. However, the odds of gaining access to the terms of the will are slim and the odds of a will containing such a provision are slimmer still.
There are a number of circumstances in which liability under a guarantee may be subject to challenge, however a carefully drafted guarantee will go a long way to minimising this risk.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
